Question

A company entered into the following transactions concerning its computer system: On January 1, 2010 purchased...

A company entered into the following transactions concerning its computer system:

On January 1, 2010 purchased a computer system that cost $130,000. The estimated useful Life was 3 years and salvage value was $5,000. Calculate the FIRST YEAR of depreciation using (1) St. Line and (2) Double Declining Balance.

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Answer #1

Straight line method:

Annual depreciation=(Cost-Residual value)/useful Life

(130,000-5000)/3=$41666.67/year(Approx)

Hence first year depreciation=$41666.67(Approx).

Double decline balance:

Depreciation rate as per straight line method=(100/3)=33.33%/year(Approx)

Hence depreciation rate as per double decline balance=2*Depreciation rate as per straight line method*Beginning value of each period

Hence first year depreciation=(2*33.33%*130,000)=$86,666.67(Approx)

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